Government boosts renewables funding, confirms controversial solar subsidy changes
The Department for Energy and Climate Change (DECC) has announced it is adding £95m to the Contracts for Difference (CfD) scheme, but also removing large-scale solar farms from the existing Renewables Obligation (RO) initiative.
The CFD shakeup will see the expanded budget split into two pots, with Pot 1 offering £65m for 'established technologies', such as solar power, onshore wind, energy-from-waste, landfill gas and sewage gas. Pot 2 offers £235m over the next four years to less-established technologies such as offshore wind, wave, tidal stream, anaerobic digestion (AD), and geothermal.
--- Read full industry reaction to this news here ---
Contracts for Difference are essentially contracts that guarantee a payment in case of a market shortfall. If the price of electricity falls, for example, renewable energy generators will be compensated by the Government.
The aim of the CfD scheme is to provide clear, predictable and long-term prices for electricity generated from renewables in order to encourage more investment in new, clean generation. Low-carbon electricity projects can compete at auction for the Contracts, to ensure that 'consumers get the best possible deal'.
Making this announcement earlier today (2 October), Energy and Climate Change Secretary Ed Davey said: "We are transforming the UK's energy sector, dealing with a legacy of underinvestment to build a new generation of clean, secure power supplies that reduce our reliance on volatile foreign markets."
But the bad news for the solar industry is that the Government also confirmed that, after a consultation, the RO scheme will close to solar farms above 5MW two years early; from April 2015.
The consultation suggested the solar industry had become successful and competitive enough that taxpayer money could be better spent elsewhere.
The RO places an obligation on licensed electricity suppliers in the United Kingdom to source an increasing proportion of electricity from renewable sources, with a view to meeting an EU target of 15% renewable energy by 2020.
How RO Works: -
- Ofgem issues Renewables Obligation Certificates (ROCs) to electricity generators relating to the amount of renewable electricity they generate.
- Generators sell their ROCs to energy suppliers, which allows them to receive a premium in addition to the wholesale electricity price.
- Suppliers present their ROCs to Ofgem to demonstrate their compliance with the RO.
The move to end the RO support mechanism for large-scale solar two years early has been widely opposed by the renewables sector and green groups, with Friends of the Earth, Greenpeace and The Solar Trade Association together publishing an open letter to the Prime Minister and Deputy Prime Minister; claiming that solar power could be cheaper than fossil fuels in the next Parliament - but only with 'consistent and stable policies' from Government.
REPORT: Government consultation response